CE/SEE Central Bank Insights: Rate cuts around the corner

With the winter energy crisis behind us (and less severe than feared) energy prices are now already decreasing headline inflation in some countries in CE/SEE and thus accelerating the ongoing disinflation. Fuel prices also add  to this with a high comparison base from last year and thus a negative yoy dynamic.

Food prices remain an important driver of high inflation. Still, their contribution to inflation is decreasing too. But this process occurs at a very gradual pace while weather conditions pose an upside risk to this price category.

Industrial goods' inflation is slowing and should remain in a downtrend as a result of the easing of supply chain disruptions as well as destocking among firms (from high levels in 2022) and lower demand that willlimit the  price pressures. Still, for now, the contribution and price dynamics remain relatively high in some countries.

The key concern from a monetary policy point of view are, however, core inflation and prices in the services sector where the wage costs have a higher share (while labour markets remain very tight in most CE/SEE countries). However, also here a turnaround is visible in most countries except for Hungary and Romania. In fact, price developments in Hungary reveal still the highest upside risks also looking at the breadth of inflation with still over 60% of items in the HICP basket recording inflation above 10% and no clear change here, contrary to the rest of the CE/SEE countries.

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